Farmers shake unhusked rice during a harvest in an agriculture area in Bekasi, on the outskirts of Jakarta, Friday. Indonesia will scrap import quantity limits on horticultural products, the trade ministry said on Friday, as it looks to head off a World Trade Organization trade spat with the United States.

Enny Nuraheni/Reuters

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Bantul, Indonesia — Central Java’s farming villages are tight-knit and communal. But trust in one’s neighbors has wavered over the past month as food prices have spiked, turning crops like garlic and shallots into a small fortune.

“If the price of shallots becomes expensive we have to watch for thieves,” says Suripto, one of several farmers who participate in regular night patrols to guard their fields against looters. He says none of his precious shallots have been stolen yet. But the threat has stirred suspicions and put police and farmers on alert.

Over the past month, shallot prices in Indonesia have ballooned from around $1.20 a kilogram to as much as $7. Prices of garlic and beef have also spiked because of government policies that restrict imports of certain fruits, vegetables, and animal products.

The increase has hit consumers in Indonesia, where around half the population of 240 million still lives on less than $2 a day and where spices like shallots and garlic are staples. It has also been a source of intrigue, with stories about price fixing cartels and police busts of illegal onion smuggling operations gracing the pages of local newspapers.

Supply and demand

Analysts say the supply shortage stems from complex import licensing procedures and inexplicable limits on goods that Indonesia could never produce enough of on its own.

For instance, a horticultural import regulation that took effect in September requires all fruit and vegetable importers to obtain an import recommendation letter from Indonesia’s Ministry of Agriculture, which sets import quotas. Only then can they apply for an import permit with the Ministry of Trade. The import licensing and quota system for beef is similar.

Officials say limits are needed to improve food safety and ensure higher incomes for farmers. But without measures in place to help farmers boost their production, development experts say import restrictions often have the opposite effect.

The restrictions also hurt consumers by driving up prices unnecessarily, economists say.

“What we’re seeing is price spikes without credible evidence of adequate supply,” says Sjamsu Rahardia, a senior economist at the World Bank. “This is not the best policy to achieve Indonesia’s development objectives.”

According to the trade ministry, for example, Indonesia produces about 14,200 tons of garlic annually against the 400,000 tons consumers eat – and much of that local supply goes toward the production of traditional medicine. It must make up the difference through imports, 95 percent of which come from China.

Who's at fault?

But the government says import restrictions are not the problem.

It blames the rising price of garlic on a lack of supply from China. (A government watchdog, meanwhile, has accused importers of holding thousands of tons of the pungent spice at ports to drive up prices) And the government says the high price of shallots – most of which are grown domestically – is the result of heavy rains that have reduced crop output.

On Wednesday, April 3, trade ministry officials said they would look at revising the licensing procedures to make them simpler, though restrictions will remain in place.

Beyond restrictive import licenses, the government has already been pushing a more broad-based drive to achieve self sufficiency in several food products, including rice, cattle, sugar, corn, and soybeans, by 2014.

The government recently said it would not import rice this year and has dramatically reduced its reliance on imported beef. But it has announced it will not meet domestic demand in soybeans – about 80 percent of which come from the United States – and sugar.

The drive to curb imports – a product of both import restrictions and the self sufficiency drive – has irked officials in Washington, who had been hoping to improve the US trade balance by providing beef to Indonesia’s growing, protein-hungry middle class.

In January the US Trade Commission filed a complaint with the World Trade Organization accusing Indonesia of unfairly restricting US imports to protect its own domestic agriculture industry.

Some analysts say the trade restrictions may actually be a way for certain government officials to fill their own pockets and fund future elections campaigns

“It’s a part of this misguided, nationalist economic policy,” says Yohanes Sulaiman, a political science lecturer at the Indonesian National Defense University

He says the import quota system is riddled with corruption largely because the complex licensing rules allow officials to seek bribes in return for expediting the process. Recently the head of the political party whose members dominate the agriculture ministry was named a suspect for allegedly accepting bribes in return for awarding meat import contracts.

“The Ministry of Agriculture is using this function to raise money,” says Mr. Sulaiman.

And with elections set for 2014, he says, corruption and nationalist policy appeals are likely to increase – keeping people like Paniem, a woman whose husband participates in the night patrols in Bantul, ever mindful of their small fields of gold.

Four dollars a kilogram for shallots, she says with incredulity, nodding toward this week’s selling price. “That is extraordinary.”